Bob Evans sees strength in packaged foods

by Monica Watrous
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Bob Evans refrigerated side dish and sausage
Bob Evans plans to continue the momentum of its packaged foods business with new products and packaging.

NEW ALBANY, Ohio — Bob Evans Farms, Inc. aims to drive continued momentum in its packaged foods business with new products, packaging, flavors and formulations geared toward consumer trends. Meanwhile, to reverse traffic declines in its more than 500 restaurants, the New Albany-based company plans to launch a comprehensive menu redesign later this summer.

 

Mark Hood, Bob Evans
Mark Hood, chief administrative and CFO of Bob Evans

“Product innovation, menu redesign, and refinements to our pricing and discounting all figure into our plans in the quarters ahead, but hospitality and quality are the linchpins that will allow us to leverage these initiatives and the investments they require to drive transaction growth at Bob Evans Restaurants and continued profitable sales growth at BEF Foods,” said Mark Hood, chief administrative and chief financial officer of Bob Evans Farms, during a March 2 earnings call with financial analysts.

For the third quarter ended Jan. 22, Bob Evans posted net income of $12,931,000, equal to 62c per share on the common stock, up 118% from $5,920,000, or 25c per share, in the third quarter of fiscal 2015. On an adjusted basis, net income was down nearly 10% from $14,317,000, or 61c, the year before.

Net sales were $346,505,000, down 3 percent from $357,177,000 in the prior-year period. The shortfall was attributed to a 3.6 percent decline in same-store sales at Bob Evans Restaurants and the impact of 13 net restaurant closures, which partially was offset by net sales growth in BEF Foods.

Operating income for Bob Evans Restaurants was $14,453,000, which compared with $14,153,000 in the year-ago quarter. Segment sales were $238,608,000, down 4.7 percent from $250,389,000.

“Total transactions declined 6.5 percent during the quarter, in line with the prior two quarters, as we continue to lap last year’s aggressive discounting strategy, the fourth quarter in which we will be lapping prior year (buy-one-get-one) efforts,” Hood said.

The company saw breakfast sales turn positive in the quarter behind efforts to stabilize business at that day part. Enhancements are now under way to drive improved trends during lunch and dinner, too, the company said.

Bob Evans restaurant breakfast plate
Bob Evans saw breakfast sales turn positive in the quarter.

Operating income for BEF Foods was $20,609,000, up 35 percent from $15,274,000. Segment sales were $107,897,000, up 1 percent from $106,788,000. Refrigerated side-dish and sausage lbs sold increased 16  and 11 percent, respectively, as average net selling price per pound declined nearly 8 percent compared to the prior-year period, reflecting an increased sales mix of lower-priced side dish products relative to sausage, and increased trade spending to remain competitive in the market.

“As planned, lower margin foodservice pounds sold declined again this quarter as we focus on growing our branded retail business and use food service sales to leverage plant operating efficiencies,” Hood said.

The company said it continues to make progress with its previously announced real estate monetization initiatives, having reached an agreement for a $200 million sale leaseback of up to 145 restaurant properties that is expected to close by the end of the fiscal year.

“The actions we have taken to monetize nearly $300 million of real estate assets and aggressively repurchase shares reflects our confidence that the focus we have placed on improving Bob Evans Restaurants and BEF Foods and communicating the long-term opportunity of these businesses will continue to enhance shareholder value,” Hood said.

Sandell Asset Management, one of the company’s largest shareholders, continues to push for a sale of the packaged foods unit, recently arguing in a letter to the board of directors the company could fetch more than $950 million for the business. During the earnings call on March 2, Tom Sandell raised the issue again.

In response, Saed Mohseni, who became president and chief executive officer of the company on Jan. 1, said: “Obviously Bob Evans is made out of two great divisions; one happens to have grown substantially over the last few years and … has generated a substantial amount of growth…

 

Saed Mohseni, Bob Evans
Saed Mohseni, president and CEO of Bob Evans

“Our goal is to continue to look at all options that can enhance shareholder value (and) at the same time educate our shareholders on the fact that the food division truly is a very profitable business, one that has grown substantially year over year and one that has the potential to grow for years to come, either as part of our family of companies or by itself.

“And I think that those types of options are always available, and we continue to look at it to make sure that we are giving the shareholders the best possible outcome for Bob Evans Restaurants and Bob Evans Foods.”

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